April 2024: Virtual Assets Regulatory Authority ("VARA") Licencing Process for New Firms

As the world's first authority solely for the regulation of virtual assets ("VAs") and VA related activities, VARA's regulatory regime enables virtual asset service providers ("VASPs") to conduct business in a robust environment underpinned by clear rules, regulations, and guidelines. This marks a new wave of highly anticipated regulatory oversight in this industry.

VASPs conducting VA activities without a VARA licence prior to February 2023 ("Legacy VA Operators") may apply for the Dubai Legacy Program, the purpose of which is to facilitate a seamless transition into VARA's remit. A successful application results in either a no-objection certificate or a 12-month Legacy Operating Permit ("LOP"). During the LOP phase, VASPs must fully comply with all licencing and supervision requirements.

VASPs seeking to offer VA services/conduct VA activities ("New Firm" or "New Firms") in the Emirate of Dubai (excluding the Dubai International Financial Centre ("DIFC")) ("Dubai"), must first apply for a regulatory licence from VARA. This article provides you with a high-level overview on how to apply for a VARA licence as a New Firm, including key features of the licencing framework.

Practical tips for VARA applicants

1. Exercise diligence when submitting documents. Stage 2 step 2 of the licencing process below is usually the longest part of the application, as it relies on the strength and quality of the submissions.

2. Ensure compliance with all requirements in laws, regulations and rulebooks. This includes conducting a thorough gap analysis of your policies and procedures, in accordance with requirements in rulebooks, to ensure all i's are dotted and t's crossed.

3. Plan outsourcing arrangements in advance. If your business model includes outsourcing certain operations and roles, make sure you have a plan in place to do so, and to the extent that you can prior to getting a licence, act on it. 

4. Be proactive with your application. Stay on top of your game, don't miss deadlines, and demonstrate collaboration with your VARA licencing point-of-contact. 

VARA's Licencing Framework

Licencing process

Applicants must submit their application and associated documents through the relevant commercial licensor. This is either the Department of Economy and Tourism ("DET") or any free zone in Dubai, excluding the DIFC. The process is as follows:

Stage 1 – Initial Approval ("IA")

1. Submit an initial disclosure questionnaire to the relevant commercial licensor.

2. Provide additional documentation as required.

3. Pay initial fees required to commence the application review. In practice, this is usually 50% of the licence application fee.

4. Receive an IA to finalise the firm’s legal incorporation and to complete operational set-up. At this point, the firm is not permitted to carry on VA activities.

Stage 2 – VARA licence (also referred to as VASP licence in the market)

1. Prepare and submit documentation in accordance with the guidance provided by VARA upon receipt of the IA. Applicants must ensure all policies and procedures are submitted. A high-level overview of the types of policies and procedures required include:

a.    corporate structure and governance;

b.    risk and compliance;

c.    technology; and

d.    other documents as required by VARA on a case-by-case basis.

2. Receive feedback directly from VARA on the submission. In practice, this may include meetings, follow-ups and additional requests.

3. Pay remaining portion of application licence fees and first year’s supervision fees.

4. Receive a VARA licence, which may be subject to operational conditions.